Feel Real Exam 2- NISM-Series-V-A: Mutual Fund Distributors Certification

Investing the entire sudden wealth in equities is not advisable as it carries a higher level of risk. Diversification and revisiting the financial plan are important in such situations.

An investor who is investing up to Rs. 50,000 in a mutual fund scheme (including SIPs) per year per mutual fund does not need to provide a PAN card.

In case of a breach of the Code of Conduct by an intermediary, the first step is to seek an explanation. If a second violation is proved, the registration of the intermediary is cancelled.

Securities Transaction Tax (STT) is not applicable to transactions in debt securities or debt mutual fund schemes.

Returns from an international fund depend on both the performance of the asset class and foreign currency exchange rates. Both factors contribute to the overall returns of the fund.

Suppose an investor has invested in a debt security that yields a return of 7 percent. Subsequently, yields in the market for similar securities rise to 8 percent. It stands to reason that the security, which was bought at 7 percent yield, is no longer such an attractive investment. It will, therefore, lose value.

An agreement between the AMC and the Distributor forms the basis of appointment of a distributor by an AMC.

With a higher capital base, investors often become more willing to take on risk due to their increased financial stability and ability to absorb potential losses.

The yield on Gilt (Govt. securities) is generally the lowest in the market for a given tenor. Since non-Government issuers can default, they tend to offer higher yields for the same tenor. The difference between the yield on Gilt and the yield on a non-Government Debt security is called its credit spread.

The offer document provides information on various aspects of the scheme, including its risk factors, investment objectives, and features of the portfolio. However, it does not disclose the specific names of stocks in which the scheme is likely to invest.

Gilt schemes carry higher risks compared to liquid schemes as their Net Asset Value (NAV) tends to fluctuate more due to changes in the yield market.

To become a mutual fund distributor in India, one has to pass the NISM certification Examination conducted by the National Institute of Securities Markets (NISM).

NSE's MIBOR can be used as a benchmark for Liquid Funds.

Tactical Asset Allocation is a strategy that requires market forecasting and active adjustments to asset allocation. It is typically more suitable for seasoned investors with larger investible surpluses who can afford the associated risks and costs.

Decisions in Tactical Asset Allocation are taken on the basis of the likely behavior of the markets.

Equity funds generally grow in value over a period of time, and their investment objective is to generate capital appreciation/income from a portfolio predominantly invested in equity and equity-related instruments.

The auditor appointed to audit the scheme accounts needs to be independent of the AMC's auditor to ensure unbiased and accurate auditing.

Thematic funds tend to have a wider exposure as they invest in line with an investment theme, while sector funds focus on a specific sector.

In behavioral finance, Herd Mentality bias refers to investors’ tendency to follow and copy what other investors are doing. They are largely influenced by emotion and instinct, rather than by their own independent analysis. This often works against investors' interests in the financial markets.

According to SEBI rules, commissions cannot be paid to investors. Commissions are paid to distributors, not investors.

The first step in building a mutual fund portfolio for investors is to set their financial goals. This helps determine the appropriate investment strategy and fund selection.

The information on the Total Expense Ratio charged to a mutual fund scheme is disclosed daily on the mutual fund website.

While the SID, SAI, and KIM need to be updated periodically, the interim changes are updated through the issuance of Addendum. The addendum is considered to be a part of the scheme-related documents and must accompany the KIM.

Securities Transaction Tax is not applicable to transactions in debt securities or debt mutual fund schemes. Fixed Maturity Plans are close-ended debt funds and STT is not applicable to them.

The Statement of Additional Information (SAI) provides detailed information about the mutual fund scheme, including condensed financial information for schemes launched in the last 3 financial years.

The AMFI Code of Ethics (ACE) sets out the standards of good practices to be followed by the AMCs in their operations and in their dealings with investors, intermediaries, and the public.

The Net Asset Value (NAV) of a mutual fund unit changes every day based on the market value of the mutual fund's portfolio.

Currently, there is no specific Self-Regulatory Organization (SRO) for the mutual fund industry in India.

Generally, investors in India may not be highly organized in managing their financial transactions or making decisions related to financial planning. Many individuals require assistance from financial planners to help them with their financial goals.

The investor enjoys the profits as well as bears the losses of their investments in Mutual Funds.

Mutual funds are constituted as Trusts. Therefore, they are governed by the Indian Trusts Act, 1882.

When an Indian investor invests in equities abroad, he is essentially taking two exposures: 1. An exposure to the international equity market. 2. An exposure to the exchange rate of the rupee. If the investor invests in the US, and the US Dollar becomes stronger during the period of his investment, he benefits; if the US Dollar weakens (i.e. Rupee becomes stronger), he loses or the portfolio returns will be lower.

A segregated portfolio is created in case of a credit event, and it becomes effective from the day of the credit event.

As per SEBI circular, the closing NAV of the day on which the funds are available for utilization is applicable, regardless of the size and time of receipt of the application.

Mutual funds cannot distribute dividends from unrealized appreciation in the value of investments. Dividends are typically distributed from income accruals, dividends received from equity investments, and realized gains from the sale of investments.

Mr. Anand should not invest in an Index fund if he may need money in the short term. Index funds carry market risk and may not be suitable for short-term liquidity needs. He should consider investing in liquid funds or money-market funds instead.

Time stamping is used to record the exact time of receipt of a transaction, ensuring that the cutoff timing is adhered to for NAV calculation purposes.

Both the purchase and redemption of units in an open-ended fund are based on the Net Asset Value (NAV) pricing.

Distributors of mutual funds receive compensation in the form of commissions, which are a percentage of the amount mobilized.

The difference between the scheme's actual return and its optimal return is known as Alpha. It is a measure of the fund manager's performance.

When compared to open-ended funds, investors in close-ended funds face a higher level of liquidity risk.

If an investor wants to make additional investments in the same scheme as a sole holder, he will have to do the investments under a new folio and select the mode of holding as single.

In a Closed-end fund, the Unit Capital is fixed and does not change.

Short term capital loss from an investment can be set off against short term capital gain or long term capital gain.

One of the objectives of AMFI is to undertake a nationwide investor awareness programme to promote proper understanding of the concept and working of mutual funds.

Model Risk is the risk of mis-pricing or improper valuation of derivatives.

SEBI does not approve or disapprove the scheme-related documents. It provides its observations on the documents, which the mutual fund needs to incorporate.

Encouraging excessive buying and selling of mutual fund investments (churning) for the purpose of generating higher commissions is not a fair selling practice.

In a Corporate Bond Fund, the minimum investment in highest rated corporate bonds is 80 percent of the total assets.

The Trustees have the responsibility of overseeing legal compliance in a mutual fund. They ensure that the fund follows all the legal regulations and protects the interest of the investors.

A conservative hybrid fund typically invests between 10 percent and 25 percent of its total assets in equity instruments. The majority of its investments are in debt instruments.

Indexation refers to adjusting the cost of acquisition or purchase upwards to reflect the impact of inflation. It helps in reducing the tax liability on capital gains by considering the effect of inflation.

The offer document provides detailed information about the scheme, including its objectives, investment strategy, risks, and other relevant details.

The AMC (Asset Management Company) issues a due diligence certificate stating compliance with all legal formalities at the time of making a new offer of mutual fund units.

The Statement of Additional Information (SAI) is updated before the end of 3 months of every financial year.

Although equities as an asset class are volatile investments, over a long duration of time, they tend to give good growth. Income funds, Long duration funds, and Liquid funds are all debt funds. The returns from them will only be the interest received. They are more for security and steady returns and not for growth.

Mr. A, who has a small business, may have higher liquidity needs, making a higher allocation to liquid funds advisable. Mr. B, with a stable job, may have fewer liquidity requirements and can allocate more to growth funds.

The investment range for the mutual fund house to invest in debt instruments for a Balanced Hybrid Fund is between 40 percent and 60 percent.

SEBI has mandated AMCs to put in place a due diligence process to regulate distributors who qualify any one of the following criteria: a. Multiple point presence (More than 20 locations) b. AUM raised over Rs. 100 crore across industry in the non-institutional category but including high net worth individuals (HNIs) c. Commission received of over Rs. 1 Crore p.a. across industry d. Commission received of over Rs. 50 Lakhs from a single mutual fund. In the above question, the mutual fund distributor has raised an AUM of Rs 60 crores across the industry in the non-institutional category, which is less than Rs 100 crores as per point (a) above.

Both statements A and B are true. The data related to fund performance of all mutual funds is available on the AMFI website, and SEBI has mandated the disclosure of performance data by all the AMCs.

Charitable organizations do not have Memorandum and Articles of Association. They have a Trust Deed.

Information under FATCA is to be provided only if the country of birth/citizenship/nationality/tax residency is other than India.

Higher fund management expenses do not necessarily lead to higher returns. The performance of active funds depends on various factors, including the skill of the fund manager and the market conditions.

Gold price would be the benchmark for Gold Exchange Traded Funds (ETFs).

During the retirement phase, investors typically prioritize capital preservation and steady income. Limiting equity exposure to index funds can help achieve a more conservative investment approach.

The price of a Close-Ended fund on the stock exchange can be higher, lower, or the same as its Net Asset Value (NAV) depending on demand, supply, and liquidity.

Investors can buy or sell units of an open-ended fund after the New Fund Offer at the NAV (Net Asset Value) of the mutual fund units.

When interest rates rise, bond funds with shorter average maturity tend to outperform as they are less affected by the increase in rates.

Among the given options, the Money market fund will have the lowest Interest Rate Risk.

As per SEBI circular in 2021, for the open-ended and interval schemes, the SID shall be updated within the next six months from the end of the 1st half or 2nd half of the financial year in which schemes were launched, based on the relevant data and information as at the end of the previous month. Subsequently, SID shall be updated within one month from the end of the half-year, based on the relevant data and information as at the end of September and March, respectively.

If a third-party payment is made for subscribing to a mutual fund scheme, the third party has to provide PAN details and also comply with the KYC norms.

Institutional investors typically require board approval before investing in mutual funds, which is usually obtained through a Board Resolution.

Stock exchanges that offer mutual fund trading facilities do not provide settlement guarantee. The responsibility for settlement lies with the asset management company (AMC).

Junk bonds carry the highest credit risk as they are issued by financially struggling companies with a higher likelihood of defaulting on interest payments or principal repayment.

Earlier, the Mutual Fund schemes were benchmarked to the Price Return variant of an Index (PRI). PRI only captures capital gains of the index constituents. Now, the mutual fund schemes are benchmarked to the Total Return variant of an Index (TRI). The Total Return variant of an index takes into account all dividends/interest payments that are generated from the basket of constituents that make up the index in addition to the capital gains. Such a change was required to ensure that the performance comparison is fair. The shift to TRI has been another one in the direction of increasing transparency of mutual funds.

Among the given options, the Conservative Hybrid Fund has the least exposure to equity.

A normal investor needs to provide the folio number to be identified as an existing investor in the mutual fund.

If transactions occur at the NFO price of Rs. 10 instead of the current NAV of Rs. 8, new investors would stand to lose as they would be paying a higher price for the units, while existing investors would benefit by selling their units at a higher price.

By investing in mutual funds, investors benefit from the services of professional investment managers who make investment decisions on their behalf.

The Statement of Additional Information (SAI) contains the statutory information about the mutual fund or AMC offering the scheme.

Comprehensive financial planning involves a more extensive analysis of an individual's financial situation, goals, and needs. It requires more time commitment from both the investor and the financial planner compared to goal-based financial planning.

In case a fund manager is managing more than six funds, the performance data of the top 3 and bottom 3 schemes has to be disclosed in all performance-related advertisements.

Fundamental analysis is a study of the business and financial statements of a firm. It does not involve studying charts like the Candle-Stick charts. Charts are studied by technical analysts.

The Key Information Memorandum (KIM) provides information about investor service centers, minimum investment amount, and instructions on how to make purchases of mutual funds.

Financial goal setting involves estimating the amount required for a major life event.

TDS is not applicable on capital gains for resident individuals, but it is applicable for Non-Resident Individuals (NRI).

A mutual fund scheme can invest 10% of the net assets in the equity instruments of a company.

An existing bond fund will tend to lose value when market interest rates rise.

Some mutual fund companies provide the facility for investors to directly transact through their websites, allowing them to buy/sell units online.

The applicable NAV for the allotment of units will be the NAV of the business day on which the funds are available for utilization.

In the case when the investor purchases mutual fund units worth Rs 10000 through a mutual funddistributor, the transaction charge is deducted from the gross investment of the investor.

In a securitization transaction, the originator can be a housing finance company, non-banking finance company, or commercial bank, but the RBI will not be an originator to a Special Purpose Vehicle (SPV).

The fundamental attributes of a scheme can be changed, but this should be communicated to unit holders who should be provided an option to exit the scheme.

Among the given options, the Diversified Equity fund has the highest risk.

Some of the key items contained in the KIM are as follows: • Name of the AMC, mutual fund, Trustee, Fund Manager and scheme • Dates of Issue Opening, Issue Closing and Re-opening for Sale and Re-purchase • Investment Objective • Asset allocation pattern of the scheme • Risk profile of the scheme i.e. a snapshot of the risk to the principal invested, the suitable investment horizon for investment, and the type of securities that the scheme will invest in. • Plans and Options • Benchmark Index • Dividend Policy • Performance of scheme and benchmark over the last 1 year, 3 years, 5 years, and since inception. • Expenses of the scheme • Information regarding the registration of investor grievances.

Investing in Indian pharma companies that are setting up new manufacturing capacities indicates a growth investment style. The fund manager is seeking growth opportunities in the sector.

Sector funds carry the highest risk among equity mutual funds as the investor's performance is highly dependent on selecting the correct sector.

If 'Direct' is mentioned in the space provided for ARN and the choice of a regular plan is indicated in the mutual fund application form, then the application will be considered as a Direct plan application.

Asset Allocation' means allocating a portfolio to different asset classes.

When a dividend is paid, the NAV of the units falls to that extent.